The court ruled that the SEC failed to provide sufficient evidence as to why Grayscale’s application to convert its Bitcoin Trust to a spot ETF was denied while the agency approved a futures ETF.
The hopes for a regulated product that tracks the spot Bitcoin price in the United States were rejuvenated on Tuesday after the D.C Circuit ruled in favor of Grayscale Investments, a subsidiary of Digital Currency Group, in regards to the application of a spot BTC ETF. Notably, the court of appeals ruled that the United States Securities and Exchange Commission (SEC) failed to adequately provide evidence as to why it approved the listing of two Bitcoin futures ETPs but not Grayscale’s proposed Bitcoin ETP.
As a result, the ruling paved the way for the SEC to review Grayscale’s application to convert its GBTC to an ETF without prior reasoning of price manipulation.
The ruling was positively welcomed by the cryptocurrency community, which saw most of the digital asset prices rebound on Tuesday. According to the latest crypto market data provided by Tradingview and Coingecko, Bitcoin price rallied as much as 8 percent on Tuesday to temporarily reach $28k. Notably, Bitcoin price had severally teased below $26k in the past week, thus increasing narratives of a bear market. With the Bitcoin price stabilized around $27.4k during the early Asian market on Wednesday, the total crypto capitalization was up about 4 percent in the past 24 hours to about $1.13 trillion.
SEC vs Grayscale on Spot Bitcoin ETF
The need for a regulated spot Bitcoin ETF has been advocated by fund managers as it helps provide institutional investors with a secure and liquid way of getting crypto exposure.
THIS JUST IN: The D.C. Circuit ruled 3-0 in favor of Grayscale and $GBTC. This is a monumental step forward for all who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper. Read the decision: https://t.co/ulAtcsad2G pic.twitter.com/BNZABvM7tw
— Grayscale (@Grayscale) August 29, 2023
Grayscale, a major Bitcoin investor, filed to convert its GBTC to a spot Bitcoin ETF but was rejected by the SEC. As a result, Grayscale initiated a lawsuit against the SEC in June 2022, which was ruled against the agency.
“In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful,” the court argued.
Having failed to convince the court as to why a Bitcoin futures ETP can be approved and not an ETF, experts believe it could be a matter of when before the SEC finally approves the first ETF in the United States.
“The bottom line is that while the SEC can try to take the case to the Supreme Court, they have no other avenue to deny Grayscale’s application. If the SEC changed their rationale for denying their application, it would appear even more arbitrary. The SEC already put their best argument forward, and the Court of Appeals rejected it,” Renato Mariotti, a former federal prosecutor in the Securities and Commodities Fraud Section of the United States Attorney’s Office, noted.
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